Short Seller Says They're Vindicated (Again) On This Defensive Stock

In a short report initiated April, 1 2020 with two accompanying updates, Spruce Point Capital Management warned that WD-40 Company WDFC is widely misunderstood and believed to be defensive, but in reality faces both long- and short-term secular pressures.

"In April 2020 we warned that WD-40 would not be recession proof, a hole in its balance sheet would be exposed, its longterm goals would fail, and it was time for management to step-down and admit failure," Spruce Point said in its most recent Oct. 18 update.

"As we look back and evaluate our forecasts, many proved accurate. Its financial condition is the worst in decades and three key executives are departing."

Benzinga has contacted WD-40 for comment on the short report.

What Happened: Shares of WD-40 plunged after the company reported Wednesday with worse-than-expected fourth-quarter EPS and sales results. The company also issued FY23 EPS guidance below analyst estimates.

In late 2020, the CFO and chief legal officer disclosed their retirement. In August 2022, as part of a planned leadership transition, Garry Ridge, its former CEO, retired and was replaced by Steve Brass, former president and COO.

In WD-40's most recent earnings call, the company said it was returning excess capital to its shareholders with dividends and share buybacks. Spruce Point noted the company repurchased 139,000 shares at $29.1 million.

"A nice average purchase price of $209 per share, or a 22% premium to the current price," Spruce Point said.

Why It Matters: The short report also says that WD-40 has a pattern of obfuscating its disclosures on heavily promoted products such as its Smart Straw and EX-REACH when results go the wrong way.

The company previously disclosed the combined revenue of the two products in earlier earnings reports, but now rolls the revenue data into its Multi-Use product sales, making it more challenging for investors to discern trends, according to Spruce Point.

Spruce Point said in its research it still sees approximately 45%-60% downside risk ($69-$95) to WD-40's share price as its financial situation is pressured from over 40% exposure to the U.K. and Europe and their depreciating currencies.

Spruce Point has released short reports on Skechers USA Inc SKX, Figs Inc FIGS, Broadridge Financial Solutions, Inc. BR and MGP Ingredients, Inc. MGPI.